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US inflation data is the focus as gold drops from a seven-week high.

US inflation data is the focus as gold drops from a seven-week high.
US inflation data is the focus as gold drops from a seven-week high.

Gold prices fell on Monday, despite hitting a seven-week peak in the previous session. The stronger dollar was to blame, and investors are looking forward to inflation data, which will provide new clues about the policy direction of central banks.

As of 1122 GMT, spot gold was down 0.2% to $4,332.68 an ounce. After weak U.S. payroll data, prices hit their highest level since June 17, on Friday.

U.S. Gold Futures dropped 0.2% on Monday to $4,391.60.

Dollar gained 0.2% making greenback bullion prices more expensive for holders of other currencies.

Gold remains capped by the U.S. - Iran conflict and tensions along the Strait of Hormuz. This is keeping the threat of inflation and higher energy prices alive. It also shields the greenback against further losses.

Oil prices rose a little on optimism about talks to reopen the Strait of Hormuz. However, gains were limited by Iran's demand that the United States meet several conditions before the waterway could reopen.

Increased oil prices may cause inflation fears and interest rates to rise for longer. Gold is often seen as a hedge against inflation, but it becomes less appealing in an environment of high interest rates.

The U.S. economy unexpectedly lost jobs in July. Previous job gains reported for the previous two months have been revised dramatically lower.

According to the CME FedWatch Tool, traders now price a 44% chance of a rate increase in September, down from 57% prior to the jobs report.

Investors will now be waiting for the U.S. producer and consumer price data, due Wednesday, to get a better idea of what the Fed is thinking about interest rates.

Economists surveyed by predict that the consumer price index for July will have increased 3.4% on an annual basis, compared to 3.5% in June.

Evangelista said that a headline figure lower than the consensus forecast of 3.4% would further decrease expectations of a Fed rate hike before the end of the year. This could weaken the dollar, and create upside potential for gold.

Silver spot rose 0.6%, to $63.94 an ounce. Platinum fell 0.5%, to $1736.20 and palladium dropped 1.5%, to $1357. (Reporting and editing by Leroy Leo in Bengaluru, with Pablo Sinha reporting from Bengaluru)

(source: Reuters)